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ATutorialontheDiscountedCashFlowModelforValuationofCompaniesL.PeterJennergren∗SixthrevisionAugust252006SSE/EFIWorkingPaperSeriesinBusinessAdministrationNo.1998:1AbstractAllstepsofthediscountedcashflowmodelareoutlined.Essentialstepsare:calculationoffreecashflowforecastingoffutureaccountingdata(incomestate-mentsandbalancesheets)anddiscountingoffreecashflow.ThereisparticularemphasisonforecastingthosebalancesheetitemswhichrelatetoPropertyPlantandEquipment.Thereisanexemplifyingvaluationincluded(ofacompanycalledMcKay)asanillustration.Anumberofothervaluationmodels(abnormalearn-ingsadjustedpresentvalueeconomicvalueaddedanddiscounteddividends)arealsodiscussed.Earlierversionsofthisworkingpaperwereentitled“ATutorialontheMcKinseyModelforValuationofCompanies”.Keywords:ValuationfreecashflowdiscountingaccountingdataJELclassification:G31M41C60∗StockholmSchoolofEconomicsBox6501S-11383StockholmSweden.TheauthorisindebtedtoTomasHjelstr¨omJoakimLevinPerOlssonKenthSkogsvikandIgnacioVelez-Parejafordiscussionsandcomments.11IntroductionThistutorialexplainsallthestepsofthediscountedcashflowmodelprominentlyfeaturedinabookbyanauthorteamfromMcKinsey&Company(TimKollerMarcGoedhartandDavidWessels:Valuation:MeasuringandManagingtheValueofCompa-niesWileyHobokenNewJersey;4thed.2005).Thepurposeistoenablethereadertosetupacompletevaluationmodelofhis/herownatleastforacompanywithasimplestructure.Thediscussionproceedsbymeansofanextendedvaluationexample.ThecompanythatissubjecttothevaluationexerciseistheMcKaycompany.1TheMcKayexamp